Member-only story
Why I Don’t Include My House in My Net Worth
People love to include things that aren’t actually assets
If you look up the definition of “Net Worth”, you’ll find that it is the value of assets an individual or corporation owns minus the liabilities they owe.
What’s odd, however, is that while a mortgage is considered a liability (an outstanding loan you need to pay back), a house is considered a positive part of your net worth — an asset.
See the example Investopedia provides below.
Seems pretty straight forward. The only problem…
A house is only an asset if and when you can find a buyer.
The House
If the couple in the example were to successfully sell their home for $250,000, with $100,000 left on their mortgage, they will first need to pay off the remaining loan of $100,000 and then they can keep what’s left…sort of.
You also need to take into consideration taxes, closing costs, etc. So this number isn’t so cut and dry.
This post shares the philosophy. To see the math behind the philosophy, check out my accompanying post here.
Even worse, this is assuming that they actually sell the house and end up with money in hand. That is definitely something to be counted in your net worth if it’s done successfully and quickly — this is not always the case.
There are cases where homes sit on the market for years.
And if you’re not selling the house, how can it possibly be an asset just because it could become one later down the line. Take it from me, as a home owner I do not see my house as an asset (at least financially) because while it does offer tax incentives and is appreciating in value, until I sell it, I will be paying…
- A mortgage
- Interest on that…
